As one ages, the insurance cost goes up and eventually exceed the premium paid. (see chart below). When you are young the cost of insurance is small, however this insurance cost will balloon to a shocking amount when you hit age 60 and above. As the policy cash value are unable to sustain the cost f insurance, hence the policy will lapse. You could be left without a life insurance policy due to uninsurable at certain age or health condition. Even if you are insurable at that point in time can you afford the higher premium due to increase in age ?
Each time you pay your premium to your ILP, the premiums are used to buy unit in an investment fund pre-selected by you and then the units are sold to pay for the insurance coverage and other expenses. When the market doesn't performed in favor to your investment strategy, your fund value will decrease accordingly. Once this happen the policy might lapsed due to insufficient of fund value (account value) to deduct necessary insurance costs and other charges.
Unlike a normal whole life policy that comes with minimum guarantee cash values, the
premiums and charges in an ILP are non-guaranteed,where the insurance company reserves the right to change charges. This mean the charges can go up and down. If the insurance company raise charges, it could affect the sustainability of the policy in the long term as cost go up. However, the insurance company need to give sufficient notice to policy holder, usually six month ahead when the changes need to be exercised.
There's no such thing as free lunch. When you are approached by an insurance agent, you are presented with ILP with extremely high protection, and so called the All-in-one policy, which cover for death ; disability benefits, 36 critical illnesses, Female critical illness, Cashless medical card, daily hospital cash allowance, accident benefits, and last but not least with high investment returns, the best part of this policy is only merely of RM 200/ month. However have your ever considered high protection equals high insurance cost and charges ? These low premium too good to be true All-in-one policy can't sustain for very long and will lead to policy lapse.
1. What funds are the ILP invested in , any performance record in the past ?
2. Why are you recommending these funds to me , it is in line with my risk appetite ?
3. How much are the policy & fund charges ?
1) Be updated on your fund performance. Review regularly, switch funds if necessary.
2) Look at the illustrations, focusing on the "low" projections and gauge how long your
but will it really cheap in future?